In the wake of the COVID-19 pandemic, governments in Canada and elsewhere continue to invest in new public works projects such as roads, mass transit systems and hospitals. Those investments are fuelling strong orders for Toromont’s heavy construction equipment as well as demand for its maintenance and repair services.
That’s at least part of the reason why this firm has reported an 8.7% increase in revenue in the most recent quarter. Its balance sheet remains robust and this stock continues to be a solid long-term pick for us (we first recommended it in 1998).
The stock trades at 18.4 times the company’s 2024 earnings forecast.
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TOROMONT INDUSTRIES, (Toronto symbol TIH) distributes a broad range of Caterpillar and other branded industrial equipment (such as bulldozers, backhoe loaders and drills) in eastern Canada and the Eastern Seaboard of the U.S. The company also makes refrigeration systems through its CIMCO business.
Toromont operates through two business segments: the Equipment Group and CIMCO.
The Equipment Group (91% of revenue) includes Toromont Cat, one of the world’s larger Caterpillar dealerships, Battlefield-The Cat Rental Store, an industry-leading rental operation, SITECH, providing Trimble technology products and services, and Toromont Material Handling, representing MCFA, Kalmar and other manufacturers’ products.
Performance in the Equipment Group is driven by activity in several industries: road building and other infrastructure-related activities; mining; residential and commercial construction; power generation; aggregates; waste management; steel; and forestry.
CIMCO (9% of revenue) is a market leader in the design, engineering, fabrication, installation and after-sale support of refrigeration systems in industrial and recreational markets.
Results of CIMCO are influenced by conditions in the primary market segments it serves: beverage and food processing; cold storage; food distribution; mining; and recreational ice rinks.
In total, Toromont employs over 7,000 people in more than 160 locations across Canada and the U.S.
We first recommended Toromont Corporation in our second issue of our Power Growth Investor newsletter (then called Stock Pickers Digest) in July 1998 at $18.50 a share ($9.25 after a 2-for-1 split in April 2004).
The stock is now up a stellar 1,317.7% since then.
In May 2023, Toromont sold for $41.6 million its Manitoba-based AgWest Ltd., which distributes agricultural equipment including combines and tractors. The sale let Toromont better focus on its main businesses in eastern Canada.
Toromont is now constructing a remanufacturing plant (re-building used equipment back to the standards of new equipment) in Bradford West Gwillimbury, Ontario, north of Toronto. The plan will cost $70 million, with the facility expected to open in mid-2024.
Remanufacturing helps extend the life of heavy equipment. It’s also becoming more important as rising inflation and interest rates prompt clients to repair rather than buy new equipment. The plant will be Toromont’s fourth remanufacturing facility; the others are in Quebec City, Pointe-Claire, Quebec, and Thunder Bay, Ontario.
Meanwhile, in the quarter ended December 31, 2023, Toromont’s revenue rose 8.7%, to $1.23 billion from $1.13 billion a year earlier. That topped the consensus forecast of $1.09 billion. Both its Equipment Group and CIMCO segments reported higher revenues as supply chain shortages eased and the company accelerated deliveries.
Earnings in the quarter fell 3.6%, to $154.1 million, or $1.87 a share, from $159.9 million, or $1.94 a share. That drop was mainly because the year-earlier quarter included a $15.4 million (after-tax) gain on the sale of a property. If you exclude one-time items, earnings in the quarter rose 7%, or $9.9 million. The company did not report an adjusted earnings per share figure.
Toromont’s balance sheet remains strong: it ended the quarter with cash of $1.04 billion, while its long-term debt of $647.8 million is a low 6% of its market cap.
All in all, the company’s outlook is strong. Its strong brands and dominant position in niche markets gives it an edge over its competitors. And at the same time, Toromont’s parts and service business is a significant contributor to its overall profitability and its recurring revenue serves to stabilize results through economic downturns.
Toromont will probably earn $6.39 a share in 2024, and the stock trades at a reasonable 18.4 times that estimate.
As well, with the April 4, 2024 payment, the company raised your quarterly dividend by 11.6%, to $0.48 a share from $0.43. The new annual rate of $1.92 yields 1.6%. The company has paid regular dividends since it went public in 1968 and has raised the annual rate each year for the past 35 years.
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